Annual Report On fair terms

Transcription

1 Annual Report 2013 On fair terms B IKANO BANK ANNUAL REPORT 2013

2 CONTENT The year in brief 2 This is Ikano Bank 3 Managing Director s letter 4 Offering 6 Markets 10 Our people 12 Administration report 14 Income Statement 19 Statement of Comprehensive Income 19 Balance Sheet 20 Statement of Changes in Equity 21 Cash Flow Statement 22 Notes 23 Audit Report 67 Governance Report 68 Board and MD Management team IKANO BANK ANNUAL REPORT 2013 C

3 The year in brief HIGHLIGHTS On 1 May, the Bank acquired the credit operations of its fellow subsidiary in the UK. Ikano Bank AB was introduced on the Swedish bond market. On 1 January, the accounting and reporting currency was changed from EUR to SEK. A development programme was initiated in the spring to simplify and streamline how we work at the Bank. Operating profit amounted to msek 433 (520). The decline in earnings was mainly attributable to the switch in reporting currency, lower returns on the liquidity portfolio and investments in a development programme to enhance efficiency. The business volume increased by just over 11% to bnsek 38.9 (35.1) on the basis of favourable growth in the Corporate area and the acquisition of the operation in the UK. Lending, including leasing, increased by 25% to msek (15.839). Excluding the acquisition, and adjusted for restructuring- and accounting effects, our lending increased by 3%. Deposits increased to bnsek 14.0 (13.8), which was in line with our funding needs. Return on equity declined to 12.8% (17.8), attributable to the lower operating profit and a higher equity. Services were launched in collaboration with new retail partners, including Magasin du Nord in Denmark and BHS and Next in the UK, and agreements were signed with new corporate partners. These include Atlas Copco, CandyKing and Kemetyl in Sweden and Atea, with which we signed a Nordic partnership agreement. Ikano Bank shared the top spot in the 2013 Swedish Quality Index (EPSI rating consumer sentiment analysis) in the Personal loans category, confirming that customers appreciate our offering. NUMBER OF EMPLOYEES 719 OPERATING PROFIT MSEK 433 ACTIVE CLIENTS IN SIX COUNTRIES, MILLIONS 2.0 KEY RATIOS, % Capital adequacy ratio Tier 1 capital adequacy ratio Investment margin Return on adjusted equity C/I-ratio before loan losses Loan loss ratio LENDING, INCLUDING LEASING IN SEK MILLIONS DEPOSITS IN SEK MILLIONS 20,000 15, ,000 10,000 5, ,000 5, IKANO BANK ANNUAL REPORT 2013

4 This is Ikano Bank Simple and smart financial services on fair terms. This is what our customers can expect from Ikano Bank. We operate in six markets in Northern Europe and our mission is to provide savings and financial solutions through partners or directly to private customers and corporate clients. Ikano Bank does not operate any physical banking offices, but instead distributes its services online. Ikano Bank is part of the Ikano Group, which was originally part of IKEA with roots in the southern Swedish town of Älmhult. Since 1988, Ikano is an independent Group, with Ikano Bank included in Ikano s Finance business area. In addition to the countries where Ikano Bank operates, the Ikano Group has banking and finance operations in Germany, Poland, Austria and Russia. The Ikano Group also pursues insurance, real estate and retail operations. From the very beginning, Ikano Bank shaped its own identity, founded on continuous improvement, a desire to identify new and unconventional solutions and a strong cost consciousness. We are driven by a shared vision and values. Together, we work to fulfil our promise to our customers, partners and each other, namely, that everything we do, we do on fair terms. Our vision: To create possibilities for better living. GEOGRAPHIC PRESENSE Denmark Finland Netherlands Norway United Kingdom Sweden BUSINESS LINE Consumer We offer private customers simple and smart banking services for savings and loans, such as loans for private consumption, car loans, mortgages, credit cards and savings accounts. Sales Finance We offer financial solutions for sales support, including loyalty programmes, loyalty cards and instalment payment solutions, to retail trade partners. Our services enable our partners to offer their end-customers financial flexibility and to increase loyalty and generate additional sales. Because of our geographic presence, we can offer international retail chains our services in several European countries. Corporate We offer leasing and factoring services to companies through direct sales as well as via partners. Our services give customers greater financial flexibility and partners an opportunity to increase sales. LENDING PER COUNTRY BUSINESS VOLUME PER PRODUCT AREA Sweden Denmark Norway Finland Netherlands United Kingdom Deposits Consumer loans Cards Leasing Factoring Mortgages IKANO BANK ANNUAL REPORT

5 Managing Director s letter Investing for satisfied customers and continued growth Ikano Bank had a good year despite somewhat challenging market conditions in the consumer banking segment. Our corporate operations continued to grow strongly and, combined with our acquisition in the UK, the Bank s total business volume increased by 11% to approximately bnsek 39. The decline in operating profit for 2013 is mainly attributable to the switch in reporting currency, lower returns on the liquidity portfolio and investments aimed at increased competitiveness and customer satisfaction. The investments, which will continue in 2014, are part of a development programme to improve the Bank s growth opportunities and future profitability. Adjusted for structural costs, our earnings will remain stable. This shows that services that are easy to understand and provided on fair terms are appreciated. Ikano Bank has a stable platform upon which it can grow, and I look forward to further developing our offering in the year ahead. Better outlook for the retail trade Following several difficult years with low or negative growth, it appears as though there is a recovery ongoing in the retail trade in several of our markets. Consumer confidence is a key indicator and it is showing signs of improvement, albeit from low levels. A healthy retail trade generates demand for payment and financial solutions, which is good for Ikano Bank. An international strategy Ikano Bank is continuing its international expansion. On 1 May, the Bank acquired the credit operations of its fellow subsidiary in the UK. The Bank is now represented in six countries in Northern Europe. This move provided us with access to a market with immense growth potential for loan and savings products. So far, our experience of the acquired operation has been highly positive and the UK business has grown by 31%. 4 IKANO BANK ANNUAL REPORT 2013

6 Managing Director s letter We are a stable and profitable bank with satisfied customers and this provides us with excellent opportunities to grow. Favourable performance during the year Ikano Bank performed well during the year. Consumer preference to save generally remained high, which benefited our savings offering. Deposits grew and accounted for about 60% of our overall funding at year-end. While lending to private customers was stable with a certain degree of organic growth, the largest contribution was primarily made by our acquisition in the UK. Robust growth was noted for our corporate business during the year and we observed a large influx of new partners and customers. At year-end, the corporate business accounted for 25% of our total business volume. In early 2013, we launched a bond programme and we issued four bonds with tenors of three to four years. Investor interest was considerable and we have gained a greater spread and longer maturities for our funding. Employees and our corporate culture are key ingredients in our development, and it was therefore particularly gratifying to win a number of awards in the UK and Sweden. In Sweden, we were named one of the country s most exciting employers for the second consecutive year, while we were included on The Sunday Times Best Companies to Work for list in the UK. Investments for the future I see a bright future for Ikano Bank. We are a stable and profitable bank with satisfied customers and this provides us with excellent opportunities to grow in all of our markets. Our ongoing improvement programme and planned product launches strengthen my belief that we will continue to develop positively. In 2014, for example, we will offer leasing for entrepreneurs in Finland, savings accounts for private customers in Denmark, and loan and savings accounts for private customers in the UK. Activities within the development programme launched in spring 2013 are continuing throughout The programme encompasses investments in IT and aims to simplify and streamline our work, thereby enhancing the offering to our customers and partners. As part of the improvement activities, we introduced a new management organisation and management team during the year. We have a strong brand and position in Sweden. Many perceive our heritage, culture and customer promise as sources of stability, which we now want to leverage in more markets. This is why we have decided to increase the pace of our brand-building activities in all of our markets. This is a long-term initiative that aims to increase market awareness of Ikano Bank. We will continue to capture market shares by offering financial products that are easily understood, with no hidden fees and on fair terms. Finally, we are collaborating with the newly established fellow subsidiary Ikano Insight as part of an initiative to develop the offering for customer insight, customer loyalty and CRM. This will strengthen Ikano Bank and will primarily enhance the competitiveness of our business partners, providing them with access to even better services that will boost their sales, while also offering end-customers more customised and relevant offerings. Overall, 2013 was an important year in our development. Ikano Bank is financially strong and we move into 2014 with a stable foundation and a strategic direction that fills me with a great sense of confidence and optimism. I would like to thank all of our customers, employees and partners for the quality of the commitment and collaboration you have shown during the year! Stefan Nyrinder Managing Director, Ikano Bank AB (publ) Our deposits have increased to 60 percent of our total financing We plan ahead for increased market awareness of Ikano Bank IKANO BANK ANNUAL REPORT

7 Offering Offering to partners and customers Ikano Bank offers savings and financial solutions through partners or directly to private customers and corporate clients. Our services are simple, smart and on fair terms. Instead of banking offices, we distribute our services online. Read more about what we offer at ikanobank.se Sales Finance for retail partners Ikano Bank provides financial solutions that support sales to several leading brands, retail chains and other partners. In sales finance, we offer loyalty cards and instalment payment solutions as well as solutions for analysis and profiled customer service, with the aim of strengthening loyalty and increasing sales. With our experience and in-depth knowledge of the retail trade, we in our capacity as a bank find it easier to understand our partners businesses and operating environments. This helps us to develop offerings that are specifically adapted to their customers and terms of business. In 2013, we initiated and launched new services in collaboration with Magasin du Nord in Denmark, Lindex in Norway and Finland, Bolist in Sweden, as well as BHS and Next in the UK. Savings and loans directly to private customers We want simple solutions and to make it secure for our customers to save and borrow money. Private customers can choose from three savings accounts offering varying degrees of flexibility and return. Our savings accounts earn interest from the very first penny and are covered by the state deposit guarantee scheme. We offer personal loans, car loans and mortgages. Mortgages are provided in partnership with SBAB. The loans are simple and this is why we endeavour to have efficient application procedures and simple agreements with no hidden fees. While it should be simple to obtain a loan from us, we are also careful to ensure that our lending is carried out in a manner that is responsible and secure for the customer. In 2013, our deposits continued to grow and accounted for about 60% of Ikano Bank s funding at year-end. Corporate leasing We offer leasing for companies. Leasing is an attractive financing form which, together with our insurance solution, provides both security and flexibility for the customer. Our decision paths are short and we always strive to provide a swift response. We offer personal advisory services and tailor-made payment plans. Our total leasing stock amounted to approximately bnsek 4.9 at year-end, an increase by about 16%. The value of the average agreement was approximately SEK 93,100. In 2013, we entered into a partnership with Atlas Copco in Sweden and we signed a Nordic partnership agreement with Atea. Factoring and invoice purchasing Our invoice purchasing and factoring services are simple financing forms that help companies to quickly convert receivables into liquid funds. In factoring, the customer pledges its invoices and receives up to 90% of the invoice value. Invoice purchasing involves Ikano Bank purchasing the customer s invoices. In connection with factoring, the customer bears the credit risk, while Ikano Bank assumes the credit risk in an invoice purchasing arrangement. It is a rapid process and a case can usually be dealt with over the course of one day. In 2013, factoring sales increased to approximately msek 509 and we entered into partnership with, among others, Candyking and Kemetyl in Sweden. 6 IKANO BANK ANNUAL REPORT 2013

8 Offering Just like us, Ikano Bank looks after the many people. They are responsive to our needs and the needs of our customers, and through our collaboration we can provide the best possible financing to our customers. High rating in the Swedish Quality Index Ikano Bank shared top spot in the 2013 Swedish Quality Index in the Personal loans category. The survey measures customer satisfaction, customer loyalty, image, expectations, perceived product and service quality and value-for-money. Hans Gårlin, Customer Relations Manager, IKEA IKEA is one of our key partners. Our collaboration allows us to offer comprehensive financial solutions to both private and corporate customers. We have savings in several different accounts at Ikano Bank for our children and as a buffer. Ikano Bank offers everybody the same favourable terms. We ve been working with Ikano Bank for more than 20 years. We value their positive and solution-oriented attitude, and the fact that they are represented in all Nordic countries. Together we simplify the everyday life of our customers by offering our leasing services on fair terms. Lisa Åberg, Savings customer in Ikano Bank We offer out private customers several different saving products. We work actively for responsible and secure lending. Thor Sigurthorsson, Finance Director, Autobar Autobar offers coffee service solutions to workplaces and companies. Our leasing offering simplifies business for our partner and their corporate customers in the Nordic market. Ikano Bank is accessible and helpful. We really appreciate our partnership and how they have supported our business. Vinod Gupta, Financial Controller, Paul Simon Paul Simon deals in furniture and interior design products. Through Ikano Bank, the company offers its customers interest-free credit and flexible payment plans. IKANO BANK ANNUAL REPORT

9 Offering The basis of our relationships On fair terms Ikano Bank s customers include retail partners, corporate clients and consumers. Regardless of the customer our promise is the same: On fair terms. By this, we mean: Simple and smart products Open and clear in our way of doing business Striking fair balance between risk, work and profit in our business relationships The customer in focus The customer is the core of our strategy. We reach out to companies and consumers via partners or directly via the Bank s own channels, such as the website and customer service. We are a proactive partner that engages in continuous dialogue with our customers regarding campaigns, analyses and other services with the potential to generate value. We help our partners with financial solutions that boost sales and strengthen relationships with their customers. The digital customer interface Having the customer in focus requires us to have the capacity to deliver the solutions to meet changes in consumer purchasing patterns and the demands of our corporate customers. For our partners in the retail trade, this could involve supplying financial services for their online stores, while for our own end-customers, it could encompass the development of our Internet bank or the creation of new mobile services. In brief, solutions that simplify everyday life. In 2013, our Swedish mobile service Skipp was nominated for Best Product Innovation in the Cut the Wire Awards. Responsibility and trust Trust is decisive for our partners and customers. Assuming long-term responsibility for our business and symbolising fair terms is thus a central part of this. In this respect, responsible lending is our most important tool. We assess customers ability to repay loans on the basis of their specific circumstances and situation. We always perform an individual credit appraisal for each new borrower. In relation to private customers, it is particularly important that loans are granted on the basis of the individual s circumstances and financial situation, and that the individual s ability to repay the loan is taken into account. In Sweden, we also endeavour to generate interest in matters relating to personal finances via our family economist Bodil Hallin. Through this activity, we hope to provide our customers and the general public with ideas on how they can assume responsibility for their own finances. In 2013, we filmed and posted video clips on YouTube and Instagram in which Bodil provided concrete tips for personal finances. We want to be a responsible company and a key part of our corporate culture involves social responsibility. We are involved in various social projects, both locally and globally, with a particular focus on women and children s learning and development. During the year in Sweden, for example, we made donations to UNICEF, Musikhjälpen (Music Aid) and ECPAT. In Nottingham in the UK, we have participated in the creation of a local education program to teach children how to manage money and assume responsibility for their finances. 8 IKANO BANK ANNUAL REPORT 2013

10 Offering IKANO BANK ANNUAL REPORT

11 Markets Target groups and markets Our target groups We provide savings and financial solutions through partners or directly to private customers and companies. Among consumers, a key target group comprises those seeking an alternative to the major banks with products that are easily understood, with no hidden fees and on fair terms. In the corporate market, we focus on companies that want a long-term and efficient partner for leasing and factoring services. In the sales finance segment, we concentrate on the retail trade, with IKEA as the largest customer. Over the years, we have gained a deep understanding of how various forms of sales support can help boost sales and customer loyalty. Significance of the retail trade Ikano Bank is naturally affected by retail trade trends in the geographic markets it serves. We monitor and analyse the evolution of buying patterns over time. Changing patterns create opportunities to develop services that meet new needs. In 2013, we showed that we can defend our business volumes in Sales Finance for the retail trade, even in an environment characterised by lower private consumption. In collaboration with various retail partners during the year, we implemented several successful campaigns that surpassed the previous years results. Focus on Northern Europe Ikano Bank currently operates in the Nordic countries, the UK and the Netherlands. The Swedish business is the largest and accounted for 76% of the Bank s business volume in We continue to grow by broadening our offering in our geographic markets and by continuing to capture shares in existing markets Forecast United Kingdom Netherlands Sweden Norway Denmark Finland GDP, bnsek 17,181 5,520 3,809 3,560 2,236 1,794 GDP, growth, % 1.4% 1.1% 0.8% 1.7% 0.3% 0.6% Private consumption, growth, % 0.8% 0.5% 1.0% 2.1% 0.9% 0.4% Unemployment, % 7.6% 8.5% 7.5% 3.4% 5.7% 7.9% Population, millions Source: ECB, MF, World Bank Group, Economist SWEDEN Number of Employees: 219 Located in: Älmhult, Lund, Sundbyberg Business lines: Consumer, Corporate, Sales Finance Country Manager: Joachim Lindow FINLAND Number of Employees: 6 Located in: Espoo Business lines: Sales Finance Country Manager: Thomas Åberg In the Swedish market, we have a broad service offering for all target groups. Our range includes sales financing and loyalty programmes for the retail trade, savings accounts and loans for private customers, in addition to leasing and factoring services for companies. While growth in the Swedish economy in 2013 was relatively favourable, the pace gradually slowed during the second half of the year. Household consumption was marked by caution and the savings ratio remained high. The assessment is that Swedish growth will gain new momentum in In 2013, our deposits increased as a result of our advantageous savings programme involving monthly deposits. We also completed the introduction of e-signatures for loans, savings accounts and credit card applications to simplify for our customers. In 2014, we plan to continue developing the business for corporate customers and partners in the retail trade. One such example is the future launch of our leasing system. We will also focus on interacting with our own end-customers in more channels and on their terms. In Sweden we offer: In Finland, we offer sales financing to partners in the retail trade, who in turn wish to deepen their relationships with their end-customers. The Finnish economy was generally weak during the year, with negative economic growth and weak private consumption. The forecast is for a recovery in Despite the economic headwind, our customer base increased by more than 50% and our lending by nearly 10% during the year. Our new insurance offering to card customers was also well received. Our goal for 2014 is to increase our business volumes. In sales financing, we believe that there is favourable potential to grow with the current service offering. In the Corporate segment, we will launch leasing services for our partners. In Finland we offer: MORT- SAVE LOAN CARD LEASING GAGE FACTO- RING MORT- SAVE LOAN CARD LEASING GAGE FACTO- RING 10 IKANO BANK ANNUAL REPORT 2013

12 Markets NORWAY Number of Employees: 61 Located in: Asker Business lines: Consumer, Corporate, Sales Finance Country Manager: Morten Grusd DENMARK Number of Employees: 124 Located in: Glostrup Business lines: Consumer, Corporate, Sales Finance Country Manager: Jesper F. Schmidt In Norway we offer financial services to both corporate and private customers. Following several years of robust financial growth, the Norwegian economy slowed somewhat in However, the assessment is that growth will once again accelerate already in The Norwegian operation did not perform quite as well as it did in Strong demand from corporate clients could not fully offset the weaker demand from private customers. In the Sales finance segment, we launched new services for, among others, Lindex. In the latter part of the autumn, we launched our own personal loans to private customers. Because of the late launch, these personal loans did not have a impact on the figures for 2013, but will improve the growth potential for The main focus for 2014 is personal loans to private consumers and a continuation of efforts to increase volumes in offshore leasing for the Norwegian oil sector. In Denmark, we offer corporate leasing and consumer-oriented services via retail partners or directly, such as loans and cards. Although the Danish economy was generally weak in 2013, it was boosted by a slight recovery in private consumption. The forecast is for significantly higher economic growth in The performance of our operation in Denmark was improved compared with the preceding year. The quality of our loan portfolio was enhanced and we noted favourable growth for sales finance and leasing. In 2013, we expanded our digital presence to drive more traffic to our company websites. Our goal for 2014 is to raise profitability by improving margins and further enhancing the quality of our credit portfolio. We also intend to launch savings products in the Danish retail market. In Norway we offer: In Denmark we offer: MORT- SAVE LOAN CARD LEASING GAGE FACTO- RING* MORT- SAVE LOAN CARD LEASING GAGE FACTO- RING * Only via partner NETHERLANDS UK Number of Employees: 9 Located in: Amsterdam Business lines: Sales Finance Country Manager: Marco Schreuders Number of Employees: 184 Located in: Nottingham Business lines: Sales Finance Country Manager: Dan Joy Ikano Bank commenced operations in the Dutch market in September The market establishment was carried out in cooperation with IKEA, which operates 12 stores throughout the country. In the Netherlands, we offer loan products that provide IKEA s customers with the opportunity to finances purchases made in the stores. The Dutch economy found itself in recession during the first six months of the While the situation stabilised somewhat during the second half of the year, private consumption remained weak. Slightly positive growth in the economy as a whole is expected in The Dutch market performed poorly on account of the weak macro scenario and our initial business volume goal was not reached. To increase interest in financial services and our products, we carried out a number of successful store campaigns during the year in collaboration with IKEA with an emphasis on our existing product offering. On 1 May, the credit operations of the fellow subsidiary Ikano Financial Services in the UK were acquired. The UK business consists of services for private customers and consumer-oriented financial solutions for the retail trade. The UK economy gradually gathered strength in 2013, although private consumption remained low. A clear recovery is expected in Despite a periodically weak market, we noted strong growth for our loan offering and we now command a distinct position in the market. In 2013, we carried out successful tests of personal loans to consumers and market launch will take place in We also intend to simplify the loan application process, which is a key factor for growth. In the Netherlands we offer: In the UK we offer: MORT- SAVE LOAN CARD LEASING GAGE FACTO- RING MORT- SAVE LOAN CARD LEASING GAGE FACTO- RING IKANO BANK ANNUAL REPORT

13 Our people Our people At Ikano Bank, we encourage open and enthusiastic people to cooperate, develop and together create a more successful company. We do this by always keeping our promises to our customers, partners and each other, namely, that everything we do, we do on fair terms. OUR VALUES Working together Fair Terms Common sense and simplicity Recruitment and diversity Ikano Bank is an international company with operations in several countries. Our market is evolving rapidly and is influenced by market forces and political decisions. The combination of strong competition, demanding customers and strict regulatory and technical requirements also places high requirements on our employees. Feeling a sense of responsibility and commitment, and always working to create added value for the customer is a prerequisite for success. In our recruitment process, we are careful to always include candidates with the right skills and from different backgrounds. We place great importance on ensuring that their personal traits correspond with our culture and values. We are also concerned about letting our employees develop and grow together with us. In this context, the Ikano Group s presence in 16 countries offers employees good opportunities to develop in an international environment. In 2013, Ikano Bank had an average of 719 (479) employees, of whom 397 (256) were women and 322 (223) were men. The average number of employees in Sweden, which is both the Bank s largest market and the base for our support functions, was 337 (309). Our employees currently work in three core areas: Service and sales Service and product development Support functions, such as IT, finance/accounting and HR The acquisition in the UK also increased the total number of employees by 184, mainly in the areas of service and sales. Also during the year, we developed our recruitment process via social media with favourable results. Dare to be different Employees who enjoy their work We are pleased and proud that our employees enjoy their work and value our culture. Our annual employee survey revealed that eight out of ten feel a strong sense of team spirit and that we show respect for each other. In 2013, we also received a number of awards that shows the perception of us as a highly attractive workplace. In the UK, we were included on the The Sunday Times list of Best Companies to Work for, while in Sweden, we were named one of the country s most exciting employers by DI Karriär for the second consecutive year. Our values in everyday operations Our values are applied in everyday operations, but this does not happen automatically. It is something we work continuously with. We have different employment introduction programs in which our values are discussed in-depth and all managers participate in a three-day course focusing on values and leadership. Competent leadership is a prerequisite to ensure committed and motivated employees. In 2013, we carried out various development programmes for employees and managers to offer staff members the opportunity for personal development and to broaden the recruitment base internally. In a fast paced environment, corporate values are especially important. Three fundamental values are the base of all operations within Ikano Bank: Common sense and simplicity are embedded in our heritage and culture. Understanding our customers needs and finding solutions that can improve their everyday lives are more important to us than following the latest trends. We have a practical approach to what we do and always maintain focus on cost awareness. It should be simple and profitable to work with Ikano Bank. Working together involves surrounding ourselves with people from different backgrounds and with different personalities and skills. We want to create an environment where everybody has an important role to play and where we share valuable knowledge, experience and ideas. Working together is a long-term commitment and by listening to and respecting each other, we build strong and dynamic teams that can understand and satisfy the demands placed by our customers and partners. Daring to be different is about always striving to identify new and better ways of working, thereby developing our operation and creating added value for our customers. To succeed, we must find new ways and question what we do. 12 IKANO BANK ANNUAL REPORT 2013

14 What is fair terms to you? Pontus Jähder, Älmhult Simple products without complicated conditions. Our customers should feel confident that they know what they get when choosing Ikano Bank. Helene Ljubetic, Lund For me it s important that we take responsibility and deliver what we promise. That we have simple products without hidden fees or complicated terms, and that I as a co-worker stand behind our offer. Rob Evans, Nottingham That we focus on our customers and employees, and put our people first. That we are open and transparent in our communication. Annette Andersen, Glostrup It means we avoid the fine print. We are open and honest and our terms are easy for our customers to understand IKANO BANK ANNUAL REPORT

15 Administration report The Board of Directors and the Managing Director of Ikano Bank AB (publ), Corporate Identity Number , hereby present the annual accounts for the period from 1 January to 31 December Owner and operational structure Ikano Bank AB (publ) is a banking company with registered office in Älmhult, Sweden, and head office in Lund, Sweden. Ikano Bank is owned by Ikano S.A. with registered office in Luxembourg. Originally part of IKEA, Ikano S.A. (the Ikano Group) became a separate Group in 1988 and now has four business areas Insurance, Finance, Real Estate and Retail. Ikano Bank, which was granted a banking license for its operations in 1995, is included in the Ikano Group s Finance business area. The Bank operates in Sweden, Denmark, Norway, Finland, the Netherlands and the UK. The operations in Denmark, Norway, Finland, the Netherlands and the UK are branches of the Swedish operations. The Bank s operations are followed up on the basis of geographical markets; see Note 5, Business segments, for further details. There are three business areas within these operations: Corporate, Sales Finance and Consumer. Corporate Offered within the Corporate business area are financial solutions for corporate clients in the form of leasing agreements, object financing, invoice purchasing and factoring. These operations are primarily conducted through partnerships. This business area is represented in Sweden, Denmark and Norway. Sales Finance Services for financing and sales support, mainly to the retail trade, are managed and marketed within the Sales Finance business area. This business area is represented in all geographical markets. The services offered comprise consumer finance for sales support in the form of store cards and credit cards with Visa and MasterCard, benefit cards, bonus management and information services for sales support. The largest partner within Sales Finance is IKEA. Over the years, several more partners have been added to the business, including both local and Nordic (regional) partners covering several geographical markets. Consumer The Consumer business area is aimed at private individuals and offers simple, beneficial products and services for savings and loans. The customers carry out part of the work themselves on the Internet or by telephone, which enables efficient and timely handling and places the Bank in a position to be able to offer customers costefficient and competitive products. Lending is offered in the form of unsecured loans, mortgage loans and Visa credit cards. Mortgage loans are offered in cooperation with SBAB Bank AB (SBAB) which implies that loans are arranged together with and provided by SBAB under the Bank s Ikano Bolån brand. Lending is provided as unsecured loans and card products in Sweden, Denmark and Norway, whereas deposits and mortgage loan products are only offered in the Swedish market. During 2014, deposit products will also be offered in the Danish market. Significant events in the operations A change in the reporting currency from euro (EUR) to Swedish krona (SEK) was implemented on 1 January 2013 as a result of the Bank s change of corporate form from a European company (SE) to a public limited liability company (AB publ) in This change was carried out to enable the Bank to return to using the Swedish krona as the accounting and presentation currency for its Swedish operations. European companies are obligated to use EUR as their reporting and presentation currency. Since only about 1% of the Bank s operations are conducted in EUR, this complicated the reporting and presentation of the Bank s performance. All comparative years have been translated from EUR to SEK using the rate applied for the translation of the opening balance for On 1 May 2013, the lending operations of the fellow subsidiary in the UK, Ikano Financial Services Ltd, were acquired and incorporated into the Bank s UK branch. At the beginning of 2013, the certificate programme was supplemented with a bond programme (Medium Term Note) to increase the spread and tenure of the Bank s financing. A development programme was launched in spring 2013 in order to simplify and streamline how the Bank works. Total assets and business volumes The Bank s total assets increased over the year by msek 3,676 to msek 23,783. The Bank s equity increased by msek 426, of which msek 242 was attributable to a primary capital contribution received from the Bank s owners in conjunction with the acquisition of the UK credit operations. Equity amounts to msek 2,370 (1,944). The total business volume, consisting of loans to the public, deposits from the public, leasing assets and mediated mortgage loan volumes, rose 11% to msek 38,918 (35,085). The acquired credit operations in the UK branch accounted for 14 IKANO BANK ANNUAL REPORT 2013

16 msek 3,405 of the closing business volume, corresponding to 9 percentage points. The Bank s loans to the public rose 29% to msek 14,887 (11,584), after provisions for loan losses. The acquired credit portfolio in the UK branch contributed msek 3,405. In other geographic markets, sales financing volumes remained stable, while the consumer lending volume declined somewhat. The Bank s deposits from the public increased 2% to msek 14,084 (13,847). Deposits comprise an important part of the Bank s financing and the stable growth during a number of years shows confidence on behalf of the customers in allowing Ikano Bank to manage their savings. Leasing assets held on the customer s account rose a total of 16% to msek 4,943 (4,255), due to strong demand for financing among partners in all of our Corporate markets. The Bank had good access to financing during the year. Continued stable inflows to savings accounts resulted in lower financing requirements from other sources of funding in the Swedish operations. The Bank s total financing through deposits from the public amounted to 59% at year-end. Funding from related parties and other external financing sources increased as a result of the acquisition of the UK operations. The Bank s liquidity portfolio amounted to msek 2,959 (3,408) at year-end, corresponding to 21% of the Bank s total deposits from the public. A higher liquidity profile was maintained in the preceding year in preparation for the acquisition of the UK operations. The Bank is financed by continuous activity on the capital market. Demand for the Bank s shortterm certificate programme remained favourable. At the beginning of 2013, the certificate programme was supplemented with a bond programme (MTN) with tenures between 1-15 years to increase the spread and tenure of the Bank s financing. Four bonds with tenures of three to four years were issued with positive results. The Bank s progress over a five-year period is shown on page 18. Result Operating profit for 2013 declined 17% to msek 433 (520), primarily due to the change of reporting currency, lower returns on the liquidity portfolio and costs for the Bank s development programme. In 2012, the Swedish operations posted strong earnings due to positive translation effects from SEK to EUR, which was the Bank's reporting currency at that time. On 1 January 2013, the reporting currency was changed to SEK. Adjusted for currency effects, earnings for the Swedish operations were in line with the preceding year. Net interest income rose 18% to msek 1,081 (915), partly due to the contribution in returns from the acquired credit operations in the UK branch, but also to positive volume growth in the Corporate business area in all markets. Lower costs for the deposit operations had a positive impact on net interest income, while returns on the Bank's liquidity portfolio declined due to reduced volumes and low market interest rates in Sweden. Net leasing income declined 2% to msek 322 (327). The decline was primarily a result of the change in reporting currency from EUR to SEK due to operating leases being recognised at the historical rate of exchange. Net commission rose marginally to msek 356 (351). Other operating income declined msek 138 during the year, from msek 281 to msek 143, as a result of lower sales of intra-group consulting services and the 2012 repayment of excess VAT paid in Sweden during the years The change of reporting currency also had an impact of msek 33 on this item compared with the preceding year. General administrative expenses increased by msek 148 to msek 1,020, including the acquired credit operations in the UK branch. Depreciation, amortisation and impairments of tangible and intangible fixed assets increased by msek 216 to msek 1,757. The rise was attributable to increased depreciation on leasing assets on the customer s account, which was the result of the volume growth in the Corporate business area. Net loan losses rose 22% to msek 295 (242). Loan losses measured as a share of average total lending rose marginally to 1.7% (1.6). The increase was primarily a result of ongoing provisions for loan losses in the acquired UK operations, as well as realised losses and impairment losses in the Corporate business area due to volume growth. Employees The Bank works regularly with competence development. During 2013, a Management Development Programme and Personal Development Programme were implemented. In addition, all new and recently appointed managers participated in the Ikano Culture and Leadership Programme. The Bank s employee survey, Voice, was performed toward the end of the year and follow-up work began in the areas identified for improvement. The Works Council, which is the Bank s forum for employee participation in cross-border issues, convened on two occasions during the year. The Work Council is comprised of elected employee representatives for each country, along with the Managing Director and the Head of HR. The number of employees, calculated in terms of annual FTEs, was 719 (479), corresponding to an increase of 240 employees, 184 of whom joined the Bank through the acquired UK branch. Information on principles and processes relating to remuneration and benefits for key personnel in senior management is provided in Note 12 General administrative expenses. IKANO BANK ANNUAL REPORT

17 Risks and risk management Risk management is a well-integrated part of the day-to-day work within the Bank. Through its operations, the Bank is exposed to several risks, such as credit risk, operational risk and business risk, but the Bank also needs to manage liquidity risk, currency risk and interest rate risk. The Board and the Managing Director are ultimately responsible for risk management at Ikano Bank. Risk management aims to ensure that the risks do not exceed the risk tolerance level established by the Board of Directors. The Bank s risks are controlled centrally, but the responsibility for risk management lies, primarily, with the local entities. This implies that the operational activities own and manage risk on a daily basis. The central risk control function is responsible for monitoring and evaluating risk management. Credit risk is the Bank s major risk and is defined as the risk that an individual counterparty (borrower) may be unable to fulfil its obligations. Through good credit risk management, the profitability of lending activities can be optimised. Operational risk is the risk of direct or indirect losses caused by deficient or incorrect internal processes, procedures and systems, administrative errors or external events and factors. Operational risk also includes legal risk. The Bank s aim is to guarantee efficient processes and to maintain high levels of security and accessibility for the Bank s customers and other interested parties. Business risk is defined as the risk that the Bank s earnings may be reduced and may be insufficient to cover the costs of its operations. Business risk includes reputational risk, which is defined as the risk of financial losses caused when customers, partners or lenders lose confidence in the Bank, its brand or the industry as a whole due, for example, to negative publicity or periods of systemic stress. The Bank s risk management objectives and policies are described in more detail in Note 3 Risks and risk management. In recent years, the Bank s operations have been affected by the introduction of a number of new and amended regulations for the financial sector. Further expansions of the regulations are expected in the coming years. To deal with these changes, the Bank has strengthened its organisation for the monitoring, evaluation and implementation of new regulations. Prospects We are optimistic about Growth in Consumer and Sales Finance is expected to gradually increase. Continued positive growth is expected in Corporate. Investments in enhanced efficiency and customer value will also impact the Bank s costs in Ikano Bank has a strong capital base and sound liquidity, which makes us well-equipped for growth. As part of our growth plan, we will be launching new products in several of our markets during 2014, including personal loans in Norway and the UK, deposits in Denmark and leasing in Finland. Our acquisition in the UK is expected to further contribute to the Bank s growth in The investments we are making in the future will also increase our operational efficiency and further enhance our growth potential, since we will be able to offer our customers simpler and more customised offerings faster. This will make us an even stronger partner for our customers. Proposed allocation of profits The following profits are at the disposal of the Annual General Meeting of Shareholders (SEK): Fund for fair value 37,311,304 Profit brought forward 1,869,524,870 Net profit for the year 190,376,129 Total 2,097,212,303 The Board of Directors proposes that profits be allocated as follows (SEK): To be carried forward 2,097,212,303 Of which allocated to the fund for fair value 37,311,304 Capital adequacy The Core Tier 1 capital ratio under Basel II amounted to 14.0% (13.5) and the total capital adequacy ratio under Basel II amounted to 16.7% (16.5). For more information on the calculation of capital adequacy, see Note 39, Capital management and capital adequacy. Corporate governance report Ikano Bank s corporate governance report for 2013 is included on page 68 of this Annual Report. 16 IKANO BANK ANNUAL REPORT 2013

18 5 year summary mse K INCOME STATEMENT Net interest income Leasing income Net commission Net gains and losses on financial transactions Other operating income Total operating income General administrative expenses Depreciation/amortisation and impairments of tangible and intangible assets Other operating expenses Loan losses To tal o perating expenses Operating pro fit Appropriations Taxes Net profit for the year mse K B ALANCE SHEET Loans to credit institutions Loans to the public Interest-bearing securities Tangible assets Other assets To tal assets Liabilities to credit institutions Deposits and borrowings from the public Other liabilities Provisions Subordinated liabilities Total liabilities and provisions Untaxed reserves Equity Total liabilities, provisions and equity All comparative years have been translated from EUR to SEK at a rate of (ECB rate for the final Swedish banking day of 2012). IKANO BANK ANNUAL REPORT

19 5 year summary mse K Volumes Business volume Change during the year 10.9% 8.5% 5.9% 29.4% 46.6% Customer- related loans and deposits, leasing and mediated mortgage loans Loans to the public Change during the year 28.5% 3.7% -2.0% 31.1% 45.8% Deposits and borrowings from the public Change during the year Capital % 13.7% 19.6% 37.0% 40.9% Equity ratio 1) 12.3% 11.7% 10.7% 9.3% 9.4% Taxed equity + 78% of untaxed reserves in relation to total assets Capital adequacy ratio 16.7% 16.5% 15.1% 13.5% 12.2% Capital base in relation to risk- weighted assets Tier 1 capital ratio 14.0% 13.5% 11.7% 9.9% 9.6% Tier 1 capital in relation to risk- weighted assets Result Investment margin 4.9% 4.7% 5.0% 5.1% 5.2% Net interest income in relation to average total assets 1) Return on equity Operating profit after standard tax rate in relation to average adjusted equity 12.8% 17.8% 22.1% 25.1% 10.5% C/I-figures before loan losses 61.9% 58.6% 55.5% 54.5% 57.8% Operating expenses in relation to operating income with lease operations offset in operating income Credit quality Provisions for doubtful debts Total provision for probable loan losses in relation to doubtful debts, gross 56.0% 54.5% 51.1% 45.2% 66.4% Share of doubtful debts 5.3% 2.9% 3.0% 2.5% 3.7% Doubtful debts, in relation to total loans to the public, credit institutions (excluding banks) and lease receivables Loan loss ratio 1.7% 1.6% 1.6% 1.2% 3.1% Loan losses in relation to average loans to the public, credit institutions (excluding banks) and lease receivables Other info rmatio n Average number of employees ) Calculated in accordance with the tax rate applying each year. All comparative years have been translated from EUR to SEK at a rate of (ECB rate for the final Swedish banking day of 2012). 18 IKANO BANK ANNUAL REPORT 2013

20 Income Statement kse K Note Interest income Interest expense Net interest income Leasing income Commission income Commission expense Co mmissio n, net Net gains and losses on financial transactions Other operating income Total income General administrative expenses Depreciation/amortisation and impairments of tangible and intangible assets Other operating expenses Total expenses before loan losses Profit before loan losses Loan losses, net Operating pro fit Appropriations Tax expense Net profit for the year Statement of Comprehensive Income kse K Net profit for the year Other comprehensive income Items that can be reclassified to net profit for the year Translation difference for the year, foreign branches Changes in fair value on financial assets available-for-sale Tax related to financial assets available-for-sale Other comprehensive income, net of tax Total comprehensive income for the year, net of tax IKANO BANK ANNUAL REPORT